REAL ESTATE OUTLOOK
INLAND EMPIRE
INDUSTRIAL MARKET
FOURTH QUARTER 2016
Inland Empire industrial market ends 2016 with highest rents ever
Over 19 million square feet of industrial space absorbed for the year
At year-end, the Inland Empire industrial market market fundamentals
remain steady. Net absorption was positive for the 17th consecutive quarter,
development activity ended the year with a total of 17.8 million square feet
delivered, and 18 million square feet is currently under construction. While 2016
was another successful year in the Inland Empire, the fourth quarter saw the
lowest quarterly net absorption in four years. In addition, newly-delivered vacant
industrial buildings have sat on the market longer than at any time since before
the market began recovering several years ago. Looking into 2017, expect
market fundamentals to remain positive but with much more attention paid to
global economic issues that might affect US consumer spending.
T RENDL INES
5- YE A R TR E ND
VAC A N C Y
3.9%
Vacancy down 10bps
from Q3 2016
ABSORPTION
1.4 million SF
ECONOM Y
17 straight quarters of
positive net absorption
US economic growth remains steady led by strong consumer spending
According to the Bureau of Economic Analysis, US consumer spending was up
4.2% on an annualized basis in November, which is the strongest reported yearover-year growth in consumer spending since before the Great Recession. In
terms of domestic manufacturing, the December PMI reading of 54.7 signaled
an expansion in manufacturing and continued economic growth moving forward.
Container volumes for the Port of Los Angeles and Port of Long Beach ended
2016 with 15.6 million TEUs, which was 1.8% growth over 2015, as well as the
highest amount of activity since 2017. Overall, the Southern California regional
economy remains a bright spot nationally and as a result, industrial space
continues to be in high demand in the Inland Empire.
S U P P LY A N D D E V E L O P M E N T
Over 18 million square feet of industrial space is now underway
A total of 1.1 million square feet was completed in the fourth quarter, of which
just 14% was pre-leased. This brought total 2016 construction deliveries up to
17.8 million square feet (down 27% from 2015). Currently, over 18 million square
feet is underway (3.6% of the total existing industrial base). Of this amount, just
8.7% has been pre-leased, which could result in rising vacancies next year if this
large amount of space is not occupied by the time these projects are delivered.
Finally, while the Inland Empire is nationally known for big-box (200,000+ square
feet) development, the second half of 2016 has seen the return of speculative
development of smaller buildings (under 100,000 square feet) with an increasing
amount of those being marketed for sale rather than lease to local owner-users.
C U R R E NT Q UART E R
R E N TA L R AT E
$0.51 PSF
Average rates up 13.3%
year over year
UNDER CONSTRUC TION
18.1 million SF
Just 8.7% of new
construction pre-leased
C A P R AT E S
5.4%
Cap rates down 10 basis
points from Q3 2016
JOB GROW TH
34,100 jobs
Metro employment up
2.5% year over year
INLAND EMPIRE INDUSTRIAL MARKET
FOURTH QUARTER 2016
DEMAND
CONSUMER SPENDING GROWTH
Fourth quarter net absorption slows to 1.4 million square feet
UNITED STATES
1.5%
1.0%
0%
-1.0%
-1.5% 07 08 09 10 11 12 13 14 15 16
SOURCE US Dept of Commerce
For the 17th consecutive quarter, demand for industrial space was positive
at 1.4 million square feet. This brought total 2016 net absorption to just over
19 million square feet (relatively unchanged from 2015). In the fourth quarter,
net absorption was overwhelmingly led by the Inland Empire-West (1.6 million
square feet) while net absorption was actually negative (-180,025 square feet) in
the Inland Empire-East. While demand for newer high-quality industrial space
remains steady, leasing activity needs to keep up with development activity or
else the market-wide vacancy rate will rise in 2017.
VAC A N C Y
Total vacancy rate ticks down 10 basis points to just 3.9% at year-end
PURCHASING MANAGERS INDEX
UNITED STATES
75
50
25
0
07
08
09
10
11
12
13
14
15
16
SOURCE Institute of Supply Management
The total vacancy rate in the Inland Empire industrial market decreased to
3.9% overall, which is a year-end historical low. Sublease vacancy remains
historically low at just 352,721 square feet (0.1%). In the Inland Empire-West,
the total vacancy rate is now just 1.9% as submarkets such as Ontario, Rancho
Cucamonga, Chino, and Fontana have increasingly become built out. In the
Inland Empire-East, the total vacancy rate increased again to 6.6% mostly due to
newly delivered larger vacant industrial buildings. With over 91% of all underconstruction industrial space in the Inland Empire not yet leased, expect a rise
in vacancy levels over the next 12-18 months if there is any slowdown in leasing
activity and net absorption.
COMBINED PORT VOLUMES
R E N TA L R AT E S
LOS ANGELES/LONG BEACH PORTS COMBINED MILLION TEUs
20
15
10
5
0
07
08
09
10
11
12
13
14
15
16
SOURCE Ports of LA and Long Beach
Direct weighted average asking rental rates up to $0.51 per square foot
The direct weighted average asking rental rate market-wide increased to $0.51
per square foot per month (up 13.3% year over year), which is now the highest
rent reported ever in the Inland Empire. Although industrial space demand has
remained steady market-wide, the large amount of recently delivered vacant
buildings and projects in the development pipeline has mostly kept average
rental rates from increasing faster over the past 2 years. Expect rental rate
growth to slow in the short term as tenants now have more space options,
especially in the big-box segment, than at any time over the past several years.
However, certain infill submarkets in the Inland Empire-West will continue to see
increasing rents as space availability continues to be historically low.
Metro Inland Empire Industrial Market Indicators
PROPERTY CLASS
Warehouse/Distribution
INVENTORY
UNDER
CONSTRUCTION
Q4 NET
ABSORPTION
YTD NET
ABSORPTION
DIRECT
VACANCY
SUBLEASE
SPACE
TOTAL
VACANCY
AVERAGE
RATE PSF
473,019,699
18,056,031
1,537,914
18,496,738
3.9%
0.1%
4.0%
$0.51
Manufacturing
23,818,537
0
-101,713
525,902
3.0%
0.0%
3.0%
$0.56
IE Metro Total
496,838,236
18,056,031
1,436,201
19,022,640
3.8%
0.1%
3.9%
$0.51
2 R E AL E STATE OUTLOO K INLA ND EMP IRE INDUST RIA L MA RKET Q4 2 0 1 6
INVESTMENT MARKET
2016 industrial building sales volume down nearly
15% year over year
The Inland Empire industrial market reported a total of
$527.2 million in sales in the fourth quarter which brought
total 2016 sales volume to over $1.5 billion (down 15%
from 2015). The Inland Empire remains a highly soughtafter market for industrial investors due to its newer
vintage industrial product, larger average sizes of individual
buildings, and enviable corporate user roster, many of
whom are well-known Fortune 500 companies. However,
with interest rates widely expected to rise in 2017, expect
an end to the cap rate compression seen over the past
few years, which will result in a cooling in pricing moving
forward. Nevertheless, industrial investment sales volume
is projected to remain elevated next year due to steady
growth in the overall economy.
METRO INLAND EMPIRE NET ABSORPTION AND VACANCY
NET ABSORPTION MILLION SF
VACANCY
12.0
15%
9.0
12%
6.0
9%
3.0
6%
0
3%
-3.0
07
08
09
10
11
12
13
14
15
16
0%
SOURCE: Transwestern
METRO INLAND EMPIRE RENTAL RATES VS. CONSTRUCTION
UNDER CONSTRUCTION MILLION SF
AVERAGE RENTAL RATE
30
$0.50
20
$0.40
10
$0.30
OUTLOOK
Market ends 2016 as one of the best ever but
questions remain going into 2017
The Inland Empire industrial market at year-end 2016
continues to report steady market fundamentals as the
overall US economy continues to grow. As corporate
users have consolidated into newer, more efficient
industrial facilities combined with the continued growth in
e-commerce requirements, it is no surprise that the Inland
Empire remains by far the premier industrial development
market on the West Coast. While questions remain about
slowing leasing activity compared to the high amount of
speculative development underway, for the most part, the
market is healthy but macroeconomic issues which could
affect domestic consumption will be more closely watched
than ever in 2017. n
0
07
08
09
10
11
12
13
14
15
16
$0.20
SOURCE: Transwestern
METRO INLAND EMPIRE HISTORICAL SALES TRANSACTION ACTIVITY
METRO INLAND EMPIRE SALES VOLUME MILLIONS
800
600
SOURCE: Name goes here
400
200
0
07
08
09
10
11
12
13
14
15
16
SOURCE: Real Capital Analytics
R E A L E STATE OU TL OOK I NL AND E M PI R E I NDU STR I AL M A R KE T Q 4 2 0 1 6 3
INLAND EMPIRE INDUSTRIAL MARKET
FOURTH QUARTER 2016
Metro Inland Empire Industrial Market Indicators
MARKET AREA
INVENTORY
UNDER
CONSTRUCTION
Q4 NET
ABSORPTION
YTD NET
ABSORPTION
DIRECT
VACANCY
SUBLEASE
SPACE
TOTAL
VACANCY
AVERAGE
RATE PSF
Inland Empire-West
283,888,898
9,044,892
1,616,226
10,185,537
1.9%
0.0%
1.9%
$0.54
Inland Empire-East
212,949,338
9,011,139
-180,025
8,837,103
6.5%
0.2%
6.6%
$0.48
496,838,236
18,056,031
1,436,201
19,022,640
3.8%
0.1%
3.9%
$0.51
IE Metro Total
M A J O R L E A S E AC T I V I T Y
PROPERTY
TENANT
SF
TYPE
MARKET AREA
SUBMARKET
1456 Harry Shepard Blvd
Mattel
6227 Cajon Blvd
Bob's Discount Furniture
806,322
Warehouse Renewal
Inland Empire-East
San Bernardino
New Warehouse Lease
Inland Empire-East
2950 E Jurupa Ave
Uline
San Bernardino
750,000
Warehouse Renewal
Inland Empire-West
Ontario
13053 San Bernardino Ave
Geodis (OHL)
616,551
New Warehouse Lease
Inland Empire-West
Fontana
1,205,040
M A J O R S A L E S AC T I V I T Y
PROPERTY
Mira Loma Distribution Center (3 bldgs)
PRICE
PRICE PSF
BUYER
MARKET AREA
SUBMARKET
$150,151,000
$93
The Blackstone Group
Inland Empire-West
Eastvale
555 E Orange Show Rd
$98,876,239
$90
Global Logistics Properties
Inland Empire-East
San Bernardino
6227 Cajon Blvd
$68,538,500
$85
Copper Creek Capital Partners
Inland Empire-East
San Bernardino
12320 4th St
$24,400,000
$86
Rexford Industrial
Inland Empire-West
Rancho Cucamonga
D E V E L O P M E N T AC T I V I T Y
PROPERTY
TYPE
DEVELOPER
MARKET AREA
SUBMARKET
Citrus Commerce Center (3 bldgs)
1,883,234
SF
Class A Warehouse/Distribution
Alere Property Group
Inland Empire-West
Fontana
3300 Indian Ave (Wayfair BTS)
1,244,874
Class A Warehouse/Distribution
Duke Realty
Inland Empire-East
Perris
4890 Hamner Ave
1,007,705
Class A Warehouse/Distribution
Goodman Birtcher
Inland Empire-West
Eastvale
SWC Van Buren Blvd & Village West Dr
1,000,000
Class A Warehouse/Distribution
Meridian Park LLC
Inland Empire-East
Riverside
CONTACT
METHODOLOGY
Michael Soto
Research Manager, Southern California
213.430.2525
[email protected]
The information in this report is the result of a compilation of information on industrial
properties located in the Riverside-San Bernardino-Ontario metropolitan area. This report
includes warehouse/distribution and manufacturing properties 10,000 SF and larger,
excluding R&D/flex facilities and industrial condominium buildings.
601 S. Figueroa Street, Suite 2750
Los Angeles, California 90017
T 213.624.5700 F 213.624.9203
www.transwestern.com/losangeles
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contained in this report was gathered by Transwestern from CoStar and other primary and secondary sources believed to be reliable. Transwestern, however, makes no representation concerning the accuracy or completeness of such
information and expressly disclaims any responsibility for any inaccuracy contained herein.